What is GST?
One tax on the supply of goods and services, charged at every stage but paid only on the value added.
Last checked 20 September 2026
GST is a single indirect tax on the supply of goods and services in India, in force since 1 July 2017. It is charged at every stage of the chain, but each business claims credit for the tax it paid on its own purchases — so what actually reaches the government at each stage is tax on the value that stage added.
What GST replaced
Before 2017 a single product could attract excise duty from the Centre, VAT from the state, service tax on the services around it, plus entry tax, octroi and a list of cesses. Worse, you could not set one off against another, so tax was charged on tax at every handover. GST folded most of those into one tax, with one set of rules and one return cycle.
The one idea: tax on value added
Everyone in the chain charges GST on what they sell (output tax) and claims back the GST they paid on what they bought (input tax credit). They pay the government the difference.
A worked example at 18%, following one item from factory to shopper:
| Stage | Sells for | GST charged | Credit claimed | Paid to government |
|---|---|---|---|---|
| Manufacturer | ₹ 1,000 | ₹ 180 | ₹ 0 | ₹ 180 |
| Distributor | ₹ 1,400 | ₹ 252 | ₹ 180 | ₹ 72 |
| Retailer | ₹ 1,800 | ₹ 324 | ₹ 252 | ₹ 72 |
| Total | ₹ 324 |
The government collects ₹ 324 in total — exactly 18% of the final ₹ 1,800 — and the shopper is the only one who actually bears it. Everyone in between collected the tax and passed it on. That is why GST is called a destination-based consumption tax.
Which is why a wrong invoice costs your buyer real money
The distributor above only paid ₹ 72 because they could claim ₹ 180. If the manufacturer never reported the invoice, or put the wrong GSTIN on it, that credit is at risk and the ₹ 180 comes out of the distributor’s pocket. See what is input tax credit.
The three taxes with one name
India is a federation, so the tax has to be shared between the Centre and the states. One GST rate is therefore collected in one of two ways depending on where the goods or services end up.
| Tax | Charged when | Goes to |
|---|---|---|
| CGST + SGST | Supplier and place of supply are in the same state | Split equally between the Centre and that state |
| IGST | They are in different states, or it is an import | The Centre, which settles the state’s share afterwards |
The total rate is identical either way. Only the split changes — and with it, who gets the credit. Full detail in CGST, SGST and IGST.
GST Calculator — free, no signupAdd or remove GST at any rate and see the CGST, SGST or IGST split.Who has to register
Registration is by turnover, and the threshold differs by what you sell and where you are. As a rough guide, the common thresholds are:
| Business | Usual threshold | Special category states |
|---|---|---|
| Supplying goods | ₹ 40 lakh a year | ₹ 20 lakh |
| Supplying services | ₹ 20 lakh a year | ₹ 10 lakh |
Some businesses must register whatever their turnover — anyone making inter-state supplies of goods, e-commerce operators, people liable under reverse charge, and casual or non-resident taxable persons among them.
Thresholds move
These figures are the long-standing ones, but limits and exceptions are amended by notification and some states have opted differently. Confirm your position with your accountant rather than acting on a web page — including this one.
What registration commits you to
- Charging GST on your supplies at the notified rate for each item.
- Issuing a tax invoice that carries everything the rules require. See GST invoice format.
- Numbering those invoices in one unbroken series per financial year. See invoice numbering rules.
- Filing returns — typically GSTR-1 and GSTR-3B. See GST returns explained.
- Keeping records of purchases so your input tax credit can be matched and defended.
Where to go next
- CGST, SGST and IGST — which one applies to a given sale.
- GST rates in India — the slabs after GST 2.0.
- What is a GSTIN — reading and checking a GST number.
- What is input tax credit — the half of GST that costs businesses the most money when it goes wrong.
Is GST charged on the price including my margin?
Yes. GST is charged on the transaction value — what you actually charge the buyer, after any discount recorded on the invoice. Your cost and margin are irrelevant to the tax calculation.
If I collect GST, is it my money?
No. You collect it on the government’s behalf and pay it over, net of the credit you are entitled to. Treating collected GST as working capital is one of the most common ways small businesses get into trouble.
Do I charge GST if I am under the threshold?
If you are not registered, you must not charge GST at all, and you cannot claim credit on your purchases. Some businesses register voluntarily precisely so they can pass credit on to registered buyers.
Sources
Free tools for this
Related reading
CGST, SGST and IGST: which one do I charge?
Inside your state the tax splits in two. Across a state border it stays whole.
GST rates in India after GST 2.0
Four main slabs since 22 September 2025, plus the special rates that survived.
What is input tax credit?
The tax you paid on purchases, set against the tax you collected on sales.
What is a GSTIN, and how do I check one?
Fifteen characters that encode the state, the PAN and a check digit you can verify yourself.